Good morning and welcome to the Worthington Enterprises Second Quarter Fiscal 2025 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer session of the call. This conference is being recorded at the request of Worthington Enterprises. If anyone objects, you may disconnect at this time. I'd now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Regina. Good morning, everyone, and thank you for joining us for Worthington Enterprises’ Second Quarter Fiscal 2025 Earnings Call. On our call today, we have Joe Hayek, Worthington's President and Chief Executive Officer; and Colin Souza, Worthington's Chief Financial Officer. Before we get started, I'd like to note that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risk and uncertainties that could cause actual results to differ from those suggested. We issued our earnings release yesterday after the market close. Please refer to it for more detail on those factors that could cause actual results to differ materially. In addition, our discussion today will include non-GAAP financial measures. A reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release, which is available on our Investor Relations website. Today's call is being recorded, and a replay will be made available later on our worthingtonenterprises.com website. At this point, I will turn the call over to Joe for opening remarks.

Thank you, Marcus, and good morning, everyone. Welcome to Worthington Enterprises fiscal 2025 second quarter earnings call. Our second quarter marks the end of our first full year as Worthington Enterprises. I'd like to start by thanking our entire team for their hard work, building this strong foundation and for embracing our philosophy that prioritizes a people-first, performance-based culture to drive shareholder returns. Financially, we had a solid quarter despite mild but persistent macro headwinds. We grew both adjusted EBITDA and earnings per share year-over-year and sequentially from Q1. While we're pleased with our results in Q2, we continue to set our sights higher. We're taking a fresh look at how we do things across the organization, we're thinking more like a startup and we're pursuing initiatives to optimize our margins as we grow Worthington. One of the things that sets Worthington apart is our ability to understand our customers' businesses and to partner with them to help drive their success, innovate, and open and expand new markets. A great example is our partnership with 3M on the PowerCore engineered cylinder. Our team's engineering prowess, collaborative approach, and relentless energy enabled 3M's October launch of a new water-based adhesive using our PowerCore cylinder, which is intended to make commercial adhesive work for construction and repair remodel roofing more efficient and effective. Innovation like this is a key element of the Worthington Business System that anchors our growth strategy. We continue to innovate in consumer products as well, and our HALO Versa pizza oven was recently named one of this year's best gifts for the holiday season by Food and Wine magazine. We have a number of new product launches planned in calendar 2025 and we are committed to continuing to bring innovation to our markets and our customers. Inorganic growth is an equally important growth driver for us. Our strong balance sheet and ample liquidity position us very well to grow through acquisitions, and we're focused on acquiring market-leading businesses that leverage our strengths and enhance our margins, free cash flows, and competitive position. We've completed the integration of our most recent acquisition, Ragasco, and we are operating as one team in Europe with what we believe is the most comprehensive and sophisticated portfolio of LPG solutions in the world. Another key component of the Worthington Business System is sustainability. We see sustainability as both an obligation and a source of strategic advantage for us. Yesterday, we announced that Amtrol-Alfa, located in Portugal, will produce and bring to market the first sustainable or green propane cylinder made with ArcelorMittal's low carbon emission steel, which has a 73% lower carbon footprint than traditional steel. Last month, we announced an initiative we're calling the West Africa Clean Cooking Fund, along with a $1 million commitment to that initiative from the Worthington Company's foundation, which we, along with our industry partners, hope will encourage and facilitate the adoption of clean and safe cooking with LPG in a region where over 250 million people are still dependent on traditional biomass for cooking, which presents significant health, deforestation, and environmental risks. Finally, Newsweek again just recognized Worthington Enterprises as one of America's most responsible companies. I'm very proud to work with people that earn these honors every day because they are committed to being creative, thoughtful, and to doing our part in society. Looking into 2025, we believe our best days are ahead of us. Our people-first culture, market-leading brands, outstanding value propositions, and our commitment to the Worthington Business System are the core tenets of who we are, and they position us very well moving forward. I’ll now turn it over to Colin, who will provide you with some details on our financial performance in the quarter.

Thank you, Joe, and good morning, everyone. In Q2, we reported GAAP earnings from continuing operations of $0.56 per share versus $0.36 in the prior year quarter. There were a few unique items that impacted our quarterly results, including the following. The current quarter was negatively impacted by net pre-tax restructuring charges of $3 million or $0.04 per share, primarily due to charges related to an executive retirement. Results in the prior year quarter were negatively impacted by $0.21 per share due to several items, the largest being corporate costs eliminated at the time of separation and transaction costs associated with separating our steel processing business. These were partially offset by a pre-tax gain within equity income from a divestiture and our CABs joint venture. Excluding these items, we generated adjusted earnings from continuing operations of $0.60 per share in the current quarter compared to $0.57 per share in Q2 of the prior year. The current quarter was also negatively impacted by $2 million or $0.03 per share due to an increase in our bad debt reserves specific to two customers who recently declared bankruptcy. Consolidated net sales in the quarter of $274 million decreased 8.1% from $298 million in the prior year. The decrease was largely driven by the deconsolidation of our former sustainable energy solution segment which contributed $28 million in sales in the prior year quarter. Our gross profit for the quarter increased to $74 million compared to $63 million in the prior year quarter, and gross margin increased approximately 580 basis points to 27% in the current quarter. Adjusted EBITDA in Q2 was $56 million, up slightly from $55 million in Q2 of last year, and up sequentially from $48 million in Q1. Our TTM adjusted EBITDA is now $235 million and TTM adjusted EBITDA margin is 20.1%. With respect to cash flows in our balance sheet, cash flow from operations was $49 million in the quarter and free cash flow was $34 million. During the quarter, we invested $15 million on capital projects, which included $5 million related to our facility modernization projects. We paid $9 million in dividends and spent $8 million to repurchase 200,000 shares of our common stock at an average price of $40.40. We received $39 million in dividends from our unconsolidated JVs during the quarter, which represents a 112% cash conversion rate on net equity income. Turning to our balance sheet and liquidity, we closed the quarter with $296 million in long-term funded debt at an average interest rate of 3.6% along with $194 million in cash. Our leverage remains extremely low with ample liquidity supported by a $500 million undrawn bank credit facility, positioning us well for the future. Net debt at quarter end was $102 million, resulting in a net debt to trailing adjusted EBITDA leverage ratio of less than a half turn. Yesterday, the Worthington Enterprises Board of Directors declared a quarterly dividend of $0.17 per share payable in March 2025. We'll now spend a few minutes on each of the businesses. In consumer products, Q2 net sales were $117 million, down 2% year-over-year, primarily due to a shift in product mix, despite a 3% increase in volumes. Adjusted EBITDA for the segment was $15 million with an adjusted EBITDA margin of 13.3% compared to $13 million and 10.7% respectively in the prior year. The current quarter was negatively impacted by $2 million due to an increased bad debt reserve I mentioned earlier. Despite continued macro headwinds, our consumer team delivered solid results achieving year-over-year growth in adjusted EBITDA and EBITDA margins. We are very bullish on the business' growth potential as market conditions improve, bolstered by strong retail partnerships and a commitment to providing essential products for outdoor living, celebrations, and home improvement. Building products reported Q2 net sales of $157 million, a 4% increase from $151 million in the prior year. This growth was primarily driven by the recent acquisition of Ragasco, which contributed $18 million in sales for the quarter, partially offset by lower volumes, particularly in heating and cooking. The large format heating business returned to year-over-year growth, but that growth was offset by some softness in our gas grill tank business due to production limitations as we completed our facility modernization project there. Adjusted EBITDA for the quarter was $47 million with an adjusted EBITDA margin of 30%, compared to $46 million and 30% respectively in the same quarter last year. Sequentially, the business showed solid improvement with adjusted EBITDA and margin increasing over 17% from $40 million and 28.4% in Q1. The year-over-year increase in adjusted EBITDA was primarily driven by the inclusion of Ragasco, which added $4 million offsetting year-over-year declines in the remaining European business and higher equity earnings from WAVE. ClarkDietrich contributed $10 million in the current quarter compared to $14 million in the prior year quarter. The ClarkDietrich team has done an admirable job navigating a challenging demand environment, and we are encouraged by the sequential improvement from Q1. WAVE continued its strong performance, delivering $25 million in equity earnings for the quarter, up from $21 million in the prior year quarter, as that team continues to execute at a high level. The building products team is navigating the current environment well. We have strengthened our value proposition to customers with new products and responsive and reliable service, enabling us to gain market share. We are also seeing steady performance from our joint ventures, and we are very well positioned as we head into the second half of our fiscal year.

Our first question will come from Kathryn Thompson with Thompson Research Group. Please go ahead.

Hi, thank you for taking my questions today.

Good morning, Kathryn.

Good morning. First, I wanted to get kicked off on your gross margins, which were up a healthy clip in the quarter and definitely higher than most recent quarters. And you've touched on some aspects of it in the prepared commentary, but could you help us understand the larger drivers, even if you have, say half is from some categories or another, but really looking at mix shift from the stock and comps, M&A, or just better environment. Just help rank order what drove the margin performance.

Sure. Thanks, Kathryn. So just a few more details there. The gross margin was up 580 basis points. If you recall, we had a product recall in the prior year quarter. And then we're also excluding sales and margin from our sustainable energy solutions business unit, which we formed a joint venture here in our Q4. And that really led to approximately 300 basis points of margin expansion just with those items. Then we layer on the inclusion of Ragasco, which we acquired in June. Additionally, there was a positive mix in our higher margin products. So we're overall pleased with where margins are this quarter at 27%. And that's about what we would kind of expect our margins to be at this time.

Okay, helpful. And with the addition of Ragasco and just kind of the shift overall structurally this year, how should we think about SG&A, kind of just give a different focus as we look forward?

So, Kathryn, when we think about SG&A, it's really in the context of how we're running the business, right? And so a lot of the things that we've been after strategically are bearing fruit. You look at the way that we've strengthened our value propositions over the last year. We talked about the 3M partnership in the consumer business. We continue to work with our partners and bring point-of-sale data and analytics to them so that they can have adequate levels of inventory as they prepare for winter weather or storms, and so that's really helping think about things. You did mention this earlier on the kind of destocking having run its course. That's more on the large format propane tank. But when we think about SG&A, obviously we inherited the SG&A that comes from Ragasco, but we're really focused on looking at things differently. When we think about optimizing and growing Worthington, we have taken a step back and are thinking about things a little differently, and that's going to allow us to be successful in any demand environment. You know, the one that we're in now, we characterize as kind of flat and steady sequentially, but when some of the markets that we participate in return to growth, that discipline is going to manifest itself, we think, in some great things.

Okay. Great. Thank you. Just to follow up on WAVE, the WAVE joint venture, it continues to perform well, double digits for six of the past seven quarters. Obviously, there's more than just office, but could you talk about just expand on trends that are driving this performance and how we should think about growth as we face tougher comps going into the next calendar year? Thank you.

Sure. Well, WAVE, as you know, is a terrific business with a great leadership team and it's a great joint venture that both ourselves and Armstrong are very proud of. One of the reasons that they can continue to do as well as they're able to is their value proposition, which really comes back to understanding their customers and being able to create and supply reliable solutions that save their end user contractors time and labor. You can buy the WAVE product, which is a portion of the overall spend, but then as you're installing those ceilings in different areas, your labor costs is an even bigger spend. So, we think about, you're right, commercial and office is a little soft, but we've seen continued strength, and this applies to some extent to ClarkDietrich as well, especially in education, healthcare, data centers, and transportation, specifically the larger airports or train stations or things like that. So, I think we would expect WAVE and ClarkDietrich to both remain stable for the next couple of quarters, with on the ClarkDietrich side, a caveat being what happens with steel prices. Based on what we can see, we think steady as she goes for both of the joint ventures.

Okay, perfect. And then just the final question, you know, one thing that we have seen in terms of talking to some of our industry contacts in the field and the construction industrial value chain is that it just transfer kind of lackluster in the spring and into the summer. But mainly over the past one to two months, you've seen a definite pick up in activity. What are you seeing in terms of your businesses, or are there some areas that are performing better more recently versus others? Thanks so much, and best of luck.

Thank you, Kathryn. Yeah, I think it's probably a little bit of a similar answer to the one we just walked through. I think that some of the infrastructure-oriented spending and some of the stimulus from, gosh, now a couple, two years, three years ago has started to make its way into projects. The CHIPS Act and some of the money that's being allocated for some of these infrastructure projects have helped with some of the larger projects that are out there. Generally speaking, when we get into talking about residential spends and things like that, it'll be a little different. But yeah, I would absolutely agree that there are still some, as we referred to them, kind of mild but persistent headwinds, but we are starting to see some green shoots in certain areas.

Our next question comes from the line of Daniel Moore with CJS Securities. Please go ahead.

Thank you. Good morning, Joe. Good morning, Colin. Appreciate the color.

Good morning, Dan.

Maybe start with building products. Just elaborate and maybe differentiate from what you're seeing. I said building products, but just more generally, I should say, on the heating and cooking space, you know, between, I guess, the large format on the one side and, you know, kind of smaller consumer on the other. And I know this is, you know, seasonally not the strongest period, but, you know, what are you seeing in terms of maybe bottoming and expectations as we think about calendar 2025?

Yeah, great question. As Colin mentioned, when we talk about heating and cooking, one of the core tenets of our growth strategy is transformation. We have been focused resolutely on our gas grill market, the barbecue market, the smaller kind of propane tank market. In the quarter, we saw a return to growth in the large format heating tanks. In the smaller tanks, we had a handful of things that we needed to get done regarding that facility modernization project. In the quarter, that hampered our ability to produce as much as we would have liked to. As you would imagine in a manufacturing environment, volume matters both because there are sales to be had and also because there are conversion costs and things like that. So, through that transformational project, as that's completed, we upgraded that facility, putting in robotics and automation. And so, as we look forward, that project is done, and we feel much better about that business moving forward, given that we finished that project and we had some market share wins in the interim.

Really helpful. And maybe kind of take it back up to 30,000 feet, but one of the comments you made was trying to think more like a startup. I'm wondering if you can elaborate on that and then just talk about any meaningful differences or in strategic direction now that you've been at the helm of CEO for a couple of months and both organically and in terms of where you're focused from an M&A perspective.

Sure, it's a great honor and a privilege to lead this company. I would say we start with what's not going to change our culture. I get people-first performance-based culture. It's a huge advantage for us. It's something that we're pretty proud of and protective of, but it's also something that we leverage. We have great people. We also have solid strategies and value propositions. We talked about the example I gave you in building products and then what we talked about in consumer. Those things are fundamental to who we are, and we're not going to change. With respect to thinking more like a startup, we're a 70-year-old company, but we're a one-year-old company as Worthington Enterprises. This gives us the opportunity to look back and think about what we want the next five years to look like. What we're trying to do, ultimately, is optimize and grow the company. As you optimize, sometimes you need to reset a little bit and think differently. The way we have historically done things matters a lot, but the way we do things now, trying to optimize our business in the current environment, will prepare us to focus on growth. Looking at what's possible for us from a margin perspective, if we are able in the next 12 to 18 months to position ourselves as we want, it will lead to good things in any environment, but particularly as growth returns to some of our end markets.

It's helpful, maybe one or two quick ones. Just housekeeping, but the sustainable energy now joint venture was just above breakeven. Do you expect to remain around those levels? Just wondering if you expect it to be a modest drag or contribution as we think about the next sort of four to eight quarters.

I'd say you're right on. It'll probably be flattish.

Got it. And then lastly, from a capital allocation perspective, you bought back 200,000 shares; you still have well over remaining on the authorization. The shares are still trading at relatively low valuations, my words, not yours, but wondering about aggressiveness from a buyback perspective going forward. Thanks again for all the color.

Yep, that's a great question. Dan, when we think about capital allocation, we still have a bias for growth. If you look at our CapEx in the quarter, I'll call it our run rate CapEx was closer to $5 million on top of $5 million in Q1. So you’re kind of running at a CapEx level of around $25 million to $30 million in relative to our sales. Once we get through our facility modernization projects, we will generate a fair amount of additional free cash flow. As we've talked about, we have goals for our free cash flow conversion rates. When we think about capital allocation, we’re still going to have a bias for growth. But when we look at M&A, the M&A market in 2024 was expected to be a big breaking of the logjam and it turns out that interest rates were stubbornly high, and there was some uncertainty around the election. That's passed us, and so now I think a lot of folks suggest that 2025 will be a more active market for M&A. Our M&A criteria is that we look for companies that make us better, improve our margins and our free cash flows. If we look at our stock price or our ability to think about what that looks like from a buyback versus how expensive M&A is or how attainable M&A is, that's always a toggle we can go back and forth on. I would expect us to at least buy back shares that offset dilution, but anything above and beyond that, our authorization is still pretty healthy. We have that lever to pull if we deem it appropriate.

Our next question will come from the line of Susan Maklari with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Susan.

Good morning, Joe, and congrats to you and Colin on both of your new roles there.

Very nice of you to say, thank you.

Yeah, my first question is, can you talk a bit about price cost as we think about the deflation that has come through steel, just where we are in that process of realizing those moves and then how you're thinking about price as we look to the next couple of quarters?

Sure. Input costs for us, part of the transformation for us is ultimately thinking about how we approach our inputs, our manufacturing, our purchasing, and things like that. Relative to the deflationary environment, I think you're mostly talking about steel. We would expect that to be relatively flat year-over-year. We are doing everything we can to keep our costs down, and to decrease what we need to put into getting our products out the door with deficiencies and things like that. The market for pricing generally is okay; I wouldn't say we're anticipating significant price increases. We're working on the back end and our efficiencies, trying to be sensitive to the elasticity that’s out there as well.

Okay, I appreciate all the color. Thank you. Good luck with everything.

Thank you. Our next question comes from Brian McNamara with Canaccord Genuity. Please go ahead.

Good morning, guys. Thanks for taking our questions.

Absolutely, Brian, good morning.

Congrats to Joe and Colin on the promotions. I'm curious, was this the plan all along in terms of succession, and does anything change in terms of your longer-term financial targets, particularly the 6% to 8% kind of top-line growth target?

Yeah, well, you're nice to say that, Brian. The plan ultimately is typically the plan right before a plan happens. Timing-wise, we're very blessed, appreciative, and grateful for the work that Andy did and our entire teams continue to do. But to your other question, as we look forward, those targets, I would say that based on the way that we're trying to drive the business and optimize the business, our goal is to maintain or grow our gross margins and work down our SG&A as a percentage of sales over time. That's going to create margin expansion for us. Again, this isn't happening tomorrow, but as we look out into the next 12 to 24 months, we think that's something that we're committed to doing. The only area we may require some help with those goals is just the markets themselves. We're relatively flat year-over-year due to markets that are flat and steady. Our growth in these environments is more around our value propositions and our ability to take share, and while de-stocking has run its course, it'll be much easier to meet those targets, and the growth won't be linear. If you're flat for a few years, there will likely be a catch-up. So that six to eight percent target isn't where we're at right now, but some of that’s from M&A, and some organic growth as markets begin to unstick will help drive our top-line and we're focused on making good strategic M&A decisions to assist with that.

Great. Appreciate the color on that. Secondly, on gross margin, I just want to confirm, I think Colin said 27% is where you expect to be moving forward. Is that, did I hear that right?

I don't want to provide specific guidance, but we are currently at 27%. As we look ahead, the dynamics mentioned regarding year-over-year comparisons will be in effect moving forward.

And then just one final one, M&A, particularly in consumer, you know, you're in three pretty different end markets with tools, outdoor living, celebrations. Where are the M&A opportunities as you see them today and kind of where in consumer do you want a bigger presence and priority?

Sure, it's a great question. Our consumer business is doing exceptionally well and their value proposition is so sophisticated. When we think about consumer, we consider adding companies to our umbrella really as those that we can improve. This involves utilizing our relationships with either our retail or distribution partners if we're going into the more professional channel. A lot of our consumers in the space are do-it-yourselfers or contractors who shop in various places. We want to be where they are. But again, I would say it’s more going to be focused on the value-added tool space and those markets as opposed to some of the others that we're currently in.

And that will conclude our question-and-answer session. And I'll hand the call back over to Joe Hayek for any closing remarks.

Thank you, Regina. And thank you, everyone, for joining us this morning. Please have a safe and very happy holiday season. We'll look forward to speaking to everybody again soon.

That does conclude our call today. Thank you all for joining. You may now disconnect.